Rohit Manocha spoke to Global M&A Network about the bevy of foreign buyers flush with cash vying for North American companies, the challenges faced by small to mid sized companies, the spotty condition of the lending markets and its effect on mid-market private equity deals, along with his insights on the combination of Morgan Joseph and Tri-Artisan.

Q.: Small to mid-size businesses are the backbone of the economy. In your opinion, what are the challenges faced by the SME businesses post crisis?

Mr. Manocha: Small to mid-size businesses continue to struggle because access to debt for smaller companies remains tough. Larger competitors are aggressively pricing their products. Smaller players who have survived the down turn have been able to do so by being appropriately capitalized and aggressively managing costs.

Q.: Per M&A deal volume, what sectors are most active versus the least, and why?

Mr. Manocha: The current market has brought fear back to the forefront. Large and small companies alike are reminded to focus on liquidity and costs in an uncertain revenue environment. In our business we are seeing a lot of activity on the consumer, healthcare and technology side.

Despite a slow recovery, consumers have gotten tired of not spending and are allocating their hard earned money to selective categories. Deep value and discount categories, and luxury are two sides of the bar bell that are doing well. Healthcare continues to be a growth industry with recent passage of Healthcare Reform legislation and an aging population, and of course technology. The U.S. continues to be the premier incubator of creative technology companies, with deep access to public and private markets for the right mouse trap. Industrial and housing related sectors continue to be slow since there are few signs of a long awaited housing recovery.

Q.: With a rebound in deal activity which companies stand to benefit in this slow-growth economy?

Mr. Manocha: Since the economy remains challenged, this really is a tale of two cities. The market leading companies are generally the companies being put up for sale or accessing the public markets. These companies have generally survived, and have even thrived, in the"great recession," and are now commanding premium multiples.

Q.: How has the increased competition in mid-market segments influenced the negotiation process between a strategic transaction versus a financial buyer transaction?

Mr. Manocha: Clearly increased competition for quality companies is drawing both private equity and strategics to the table. Private equity firms that are flush with committed funds need to put them to work and strategic buyers are more compelled to grow via acquisition in a slow top line growth economy. We just closed a transaction in which we were partnered with a private equity firm where we were able to win over a strategic buyer by creative structuring of the consideration to the seller.

Q.: It is no secret that cross-border deals have increased over the past two years. In your opinion, what is the character of recent cross-border transactions - that is of in-bound and out-bound transactions?

Mr. Manocha: Cross border transactions have definitely increased, especially the inbound ones. Foreign buyers are increasingly flush, with cash, especially some of the emerging market ones. Foreign buyers are looking to diversify their revenue streams across the globe, to balance out country and economic risk. They are also looking to acquire, western brands to leverage them across their growing economies. Examples are the recent acquisition by a Korean investment consortium of Acushnet, the owner of the Titleist and Foot Joy golf brands, and the acquisition of ARCO Aluminum, Inc. by a consortium of Japanese partners, for whom MJTA acted as advisor.

Q.: What is the changing character of foreign buyers for U.S companies in a public auction versus a private sale? How does MJTA advise foreign buyers, like the ARCO Aluminum deal?

Mr. Manocha: As foreign buyers are getting more aggressive in making U.S. acquisitions, they are reluctantly being forced to participate in public auction processes. At times, due to distance constraints, times zone considerations and cultural differences the role of an advisor becomes more difficult and important. My Partner, Jerry Cromack who advised the Japanese consortium in the ARCO Aluminum acquisition helped shepherd all the parties to a very successful outcome.

Q.: In your observations, what is the state of financing for mid-market companies? What are some of the alternative sources of growth finance available to SME's?

Mr. Manocha: Financing for middle-market companies is still spotty. Cost of debt and equity capital remains high. Although, unlike the depths of the recession, where there was no capital available, there are now some viable, although pricey options. Hedge funds, business development companies ("BDC's"), and private equity funds have been dipping into this market place. It is too early to tell if the recent market disruptions will adversely affect the availability of these sources of capital.

Q.: What are your observations on the current buyout deal structures especially as it relates to debt? In your opinion has the Dodd-Frank bill had any influence on the level of lending by banks?

Mr. Manocha: In general middle-market deals are becoming more conservatively capitalized with greater percentages of equity and less debt. This clearly puts pressure on returns, especially as valuations for good companies remain high. The Dodd Frank Bill has clearly made banks more conservative with respect to their balance sheets. Conservatism by banks has definitely impacted deals in the SME Marketplace. The recent pressure on bank stocks will be a reminder to bank executives on how fragile their financial condition remains.

Q.: What are the underlying dynamics driving recapitalizations and refinancing of PE backed companies?

Mr. Manocha: The recovering debt markets have allowed private equity funds to recapitalize and refinance portfolio companies. The trend is clearly driven by the pressure sponsors have to return capital to limited partners as well as by prudent corporate finance to extend debt maturities as capital becomes available.

Q.: In your experience, do you anticipate more restructurings and distressed M&A deals in the consumer and retail sectors of the economy?

Mr. Manocha: Our restructuring business continues to see opportunities in the small to mid-size companies who have had a tough time to get bailed out by the improving debt markets. Quality mid-size consumer retail companies are seeing renewed interest from private equity.

Q.: What are the latest developments in special-purpose acquisition companies (SPACs)? Will the improving IPO market have an impact on SPAC offerings?

Mr. Manocha: Until the recent correction, the SPAC market has come back, but it is clearly more selective. Quality teams have been able to raise capital, although generally speaking the deals have been smaller. One of our SPAC's, 57th Street General Acquisition Corp, successfully completed the acquisition of Crumbs Bake Shop, providing positive momentum to the product.

Q.: Congratulations on the combination of Morgan Joseph and Tri-Artisan Partners. What perpetuated the combination and what were some of the synergies in the merger?

Mr. Manocha: The combination of Morgan Joseph and Tri-Artisan was driven by a very complementary business model. Tri-Artisan was a private equity driven merchant bank that primarily partnered with leading private equity firms to purchase companies across all major market sectors. Morgan Joseph was a high quality middle market full service investment banking firm providing advisory and capital raising services to companies.

The combination allows the new firm to leverage the old Morgan Joseph platform to increase private equity deal flow and the Tri-Artisan platform generates greater M&A advisory and financing business from portfolio companies and private equity relationships.

Q.: What's next for the firm in terms of investment arenas?

Mr. Manocha: We are looking to selectively expand industry coverage in areas such as energy and financial services..

Q.: In closing, what book are you reading?

Mr. Manocha: I have just started Fareed Zakaria's The Post American World. Clearly, in light of the impact of the emerging economics of India, China and other rapidly growing countries, a global perspective on cultures, economies and driving forces are increasingly important.